The Kenyan government on Monday ordered an immediate reduction of oil prices and warned the government would use all its instruments to reduce the cost of refined oil to put the economy back on track.
But oil distributors and other dealers, speaking earlier, warned that an immediate reduction in the cost of oil could not be done unless the price of crude falls drastically to 50 U.S. dollars a barrel and the government cuts down its taxation of the oil industry.
In his first official warning to the oil companies since he took over as acting finance minister in July, John Michuki said the Kenyan economy was under immense pressure from the high oil prices at home as a result of the failure by the oil firms to reduce the prices.
Michuki, who is attending the International Monetary Fund (IMF),World Bank annual meeting in Washington, pledged to deal with the oil firms using all available government instruments.
"The government would like to make it clear that it stands ready to use every instrument at its disposal to protect consumers and the economy at large," the finance minister said.
However, speaking at a separate function, Ahmed Mohammed, finance director Hashi Empex of a firm dealing in the import and export business across the east African region, said the oil firms were unlikely to reduce the prices unless oil taxes were cut.
Michuki said the international price of oil has been coming down in the last couple of months.
Currently, the minister said, the global prices stands at around 78 dollars per barrel and have declined by almost 50 percent from a high of 145 dollars per barrel.
"Yet, despite the sharp and steady drop, the pump fuel prices continue to remain unacceptably at high levels," Michuki said and promised to address the issue of oil prices once he arrives from Washington later this week.
The minister said the high oil prices has had a negative impact on the economy, adding that the sharp rise in the prices has significantly driven inflation from the single digit range to the double digit range, thus eroding the purchasing power of the shilling.
"Moreover, the high fuel cost is constraining the growth of the economy and therefore making it difficult to create the much needed jobs for young people," said Michuki.
Last week, Kenyan President Mwai Kibaki ordered the energy and finance ministries to lower electricity tariffs in response to high costs that have been passed on to consumers.
Speaking during the inauguration of the second National Economic and Social Council (NESC) in Nairobi, Kibaki observed that the prices were getting out of hand and needed to be lowered to ease the financial strain on Kenyans.
"I have directed the ministries of energy and finance to review taxes and levies on electricity in order to bring down power costs," he said.
The president also directed the Kenya Revenue Authority to issue Value Added Tax (VAT) refunds within two months. Once implemented, there will be no VAT on fuel cost adjustment or the foreign exchange component.
The directive is expected to provide an incentive for manufacturers, many of whom have threatened to relocate to neighboring countries with lower energy costs.
Industrialists criticized the escalating energy costs which have increased by between 66-75 percent since January.
Source:Xinhua
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